Real estate inventory hits new record low

New Year new market? We hit a new record low of available real estate inventory this week. The big question is where does it stop? Does 2022 resume a more normal curve or are we stuck in the twilight zone of the 2021 housing market. That’s what we’ll explore in this week’s Altos Research market update. Welcome to the week’s real estate market report. The first one of 2022.

Each week Altos Research tracks every home for sale in the country, we analyze all the pricing, supply and demand, and all the changes in that data and we make it available to you before you see it in the traditional channels. By the way - stick around to the end of the video today for a very special announcement from Altos. Cool new stuff happening.

It’s Monday January 3, 2022 and here’s what the market is telling us right now as we set up for the new buying season. There are just over 293,000 single family homes unsold on the market this week in the US. That is a new record low. Falling below the previous record which we set April 30th of last year.

The big question is: where does this go next? Normally inventory hits its low point just after the new year. It’s the holidays, much of the country is covered in snow, you have holiday travel and then school kicking back in. Normally the second week of January, sometimes it’s as late as the beginning of February before we hit the lowest point of available inventory.

You can see each year here the curve bounces on the bottom each year before climbing in March. Last year, inventory kept plummeting week over week until finally turning up the first week of May. American homebuyers were in overdrive last year. 

Part of our new record low supply is to be expected. Every year Americans turn more and more single family homes into investment properties. That means fewer are available for resale. You can see that January first of just six years ago we had a million homes of unsold available inventory. Last year we started with 420,000 and this year under 300,000.

The number to watch for the next few weeks is whether inventory keeps falling substantially each week or whether this year is more like returning to the normal pattern. This is unprecedented territory, so we don’t really have a signal or a guess yet where the inventory curve is going to be in the next few months.

This is really a question of demand, since there is no mechanism for a surge of supply. There is no possible wave of new listings coming. Unless some dramatic shock hits. And that by definition would be unseen at this point. So our record low inventory is really an expression of Americans gobbling up every home they can. 

We also see this demand unabated in the immediate sales tracker. Even over the holidays 25% or more of new listings are taking offers and going into contract within just a couple days of hitting the market.

Each vertical bar here is a week of new listings coming to market. The light color chunks are those being sold essentially immediately. We have our holiday week dip in the total volume. This coming week will be relatively low again with holiday impact. Then we’ll start to see the total volume climb.

The key observation here is that there has been zero signs of demand for real estate abating. We’re still buying as fast as we can. Inventory can’t build because we’ll buy it all. 

Here’s the other way to track demand: price reductions. You can see that January is right in the middle of the decline in the annual cycle. In January we have relatively fewer price reductions because the holidays had some properties withdraw and because we start to get new listings for the spring buying season. As new listings come to market they don’t have to take price cuts until later, like if they haven’t sold in the second quarter.

Our median days on market is about 55-60 days, if you list in January, you don’t start getting nervous on your price until March. That’s why price reductions keep falling for a few more months.This price reductions reading right now shows us continued super high demand, with only 24.5% of the homes on the market right now having taken a price cut recently.

This is maybe not quite as frenzied as last year when we were at 23% but but you can see it’s lower than any of the previous years. It shows us just how much leverage sellers have in this market right now. If you have any hypothesis that the market cools in 2022, you should keep an eye on price reductions. So far no sign of cooling whatsoever. 

That brings us to pricing. We finished 2021 with the median single family home price of $365,000 a nice roughly 10% gain for the year 2021.

One of the things that this price chart shows us is that the real peak of the frenzy, the counter-seasonal trend - people buying in the off season, was Q4 2020 through Q2 2021. The winter months of last year still had real powerful pandemic trends and the lowest of the low interest rates.

Normally prices fall in December, and in 2020 they barely budged down. This December prices adjusted a little more normally you can see a little dip here. I’m talking about the pattern in the dark line here. Up in the first half of the year, down in the second half of the year. Last year the down part was very slight. This year we had a more normal pattern. This is encouraging.

Demand remains high but maybe there is some price sensitivity for affordability that buyers are communicating. The data to watch here is the light colored line. We always hit the low in the price of the newly listed cohort this week.

At $319,000, this will be the lowest point of the year. By the January 17 report we’ll see a big jump in the new listings price. And it’s the steepness of that jump that will help us forecast home price gains for the whole year.

See how the light red line here last year spiked higher faster than previous years? That was sellers looking around, seeing their neighbors home go instantly, see huge crowds at open houses and know that they should price their home a little higher.

Each week that signal continues, the higher the new listings prices go. Because of where the New Years’ holiday landed this year we’ll probably have a second week at the bottom here before the big jump.

It already looks bullish for home price gains for 2022 and we’ll get clarity on whether for example buyers are hitting a limit on affordability as prices rise or whether they feel like the inflationary economy means prices are actually more affordable in the long run.

Remember in 6% inflation, a 3% fixed mortgage is a really good deal to protect your wealth. If inflation goes higher than that, it’s a better deal. 

OK that’s all the data we have time for this week.

You know, we spend so much time here at Altos Research looking at real estate data, with me talking to the camera about real estate data. But there’s a lot more to the real estate market than that.

There are perspectives and trends and strategies - so to that end, we have launched a podcast. It’s called Top of Mind and it’s where I get to interview the really interesting leaders, thinkers, and doers in real estate.

We’ve already recorded a bunch of episodes and will be releasing one of those each week. You can find the podcast on any of your normal podcast apps.

Especially if you are a professional in this industry you should make a point to listen to that. Our first guest is Mark Johnson who is the CEO of fast growing brokerage JPAR real estate. I love this conversation because I get to ask about what are the techniques that successful agents and buyers and sellers doing right now. I learned so much in this one. We have economists and CEOs and brokers and prop-tech companies coming up. So much to learn and explore.